Hurricane Sandy to Affect Holiday Sales Only Slightly, and to the Positive

Contrary to widespread fears — and conventional wisdom — Hurricane Sandy will have little if any impact on holiday retail spending this year — and what impact it has will be to the upside. Retail consultancy Customer Growth Partners has issued highlights from a major new study analyzing the effects of 20 years of major disasters on retail spending, and the analysis shows that retail spending in the immediately subsequent Christmas shopping season actually rose — even in the year of Sept. 11. On average, in fact, retail spending in that immediate holiday season even rose slightly from the balance of the year, by about 0.4%.

We’ve studied the impact of major disasters — natural and otherwise — on consumer spending for over a decade. The good news is that in virtually every case, holiday spending in fact rises slightly in the months after a disaster. The bad news this year is that although Hurricane Sandy will be on net a slight positive, Sandy will not be able to save an otherwise ho-hum holiday season.

Last week, CGP issued its 11th annual Holiday Forecast, which calls for a mediocre year-over-year increase of 2.8% in retail sales, well below consensus forecasts calling for 3.5% to 4% growth. The forecast is less than half of 2011’s 5.8% growth rate, and represents a further deceleration from this year’s already tepid 3.7% back-to-school season growth.

We’ve had two years of 5%-plus holiday growth coming out of the Recession. Both before and after Sandy, consumers aren’t panicked about the economy, but they are worried, so they’re ‘smart-shopping’, and they’re shifting spending from discretionary goods to needs. The one thing that Sandy has done is to accelerate that shift. Unlike most holiday shopping that tends to focus more on the ‘Desires’ end of the Needs/Wants/Desires spectrum, hurricanes and snowstorms shift buying to the ‘Needs’ end of the spectrum — if not ‘emergency needs.

Based on CGP’s east coast and nationwide weekly store checks, which continued during the pre-Sandy and post-Sandy period, daily needs and emergency needs purchases dominated consumer spending, ranging from consumables such as water and milk, to small necessities such as batteries and flashlights, to big ticket items such as generator sets, gas grills, chainsaws, portable heaters, portable microwaves, and even “retro” purchases such as radios and small over-the-air televisions.

Major disasters analyzed in the study include:

Hurricane Andrew (1992)

Northridge (CA) Earthquake (1994)

Sept. 11 Terror Attack (2001)

Florida’s Four Hurricanes (Aug-Sept 2004)

Hurricane Katrina (2005).

The largest retail beneficiaries of these events tend to be home-improvement chains such as Home Depot and Lowe’s, which see sales spike both before and after major predicted weather events (earthquakes, tornados and terror attacks are a different matter), with preparation and stock up buying in advance, and clean-up and repair purchases after the event. Other key retail beneficiaries include mass merchants such as Costco, Target and Walmart; and to a lesser extent drug chains and supermarkets. General merchandise and apparel and holiday gift-giving destinations see lower traffic and sales immediately surrounding the event, but tend to see big “snap-back” buying — particularly if the event occurs closer to Christmas. Overall, major disasters don’t destroy demand, they displace, either forward or backward in time — or online. When all is said and done, Sandy won’t be able to save an otherwise so-so holiday season, but she can at least add a present or two under the tree.